 "Ashwini Kumar Hooda, deputy managing director, Indiabulls Housing Finance Ltd (IBHFL)")
Ashwini Kumar Hooda, deputy managing director, Indiabulls Housing Finance Ltd (IBHFL), tells Advait Rao Palepu that rumours of regulatory changes for housing finance companies (HFCs) are unfounded and amount to fear-mongering, adding that the main reason for the nervousness was the contagion emanating from other firms, and that the beating of IBHFL's stock on Friday was because stock prices of other HFCs fell substantially. Edited excerpts:
Why have housing finance stocks come under selling pressure?
It is difficult to say why, but there is contagion from another housing finance stock whose paper was sold at a higher yield. But that itself should not have triggered anything because if the bonds of a company which regularly issues them at 10 per cent are sold at 11 per cent, it’s not as though all hell has broken loose.
The market has concerns about a particular business and has overreacted, but it has led to some contagion for other housing finance companies and non-banking finance companies (NBFCS). That is the reason why we have seen a sharp spike downwards in the stock price but more or less things have recovered for some companies.
Does IL&FS have an exposure to IBHFL or the other way round?
We have never dealt with IL&FS.
What is the strategy to calm investor sentiment?
The majority of our investors are foreign institutional investors (FIIs), who understand the mortgage market. FIIs own 55 per cent of the company and they understand that we have a very low risk in the asset class and more than Rs 200 billion in cash, making it a very liquid balance sheet. Our cash reserves are sufficient to pay our liabilities for the next six months and will allow us to give more home loans, and have a 20-25 per cent margin without borrowing additionally from the market. The promoters, FIIs and some other institutions own around 85 per cent in the company. So clearly at such times when FIIs are on the sidelines, trade volumes become thin, so it’s easy for some to beat down the price. It will take time to recover today’s losses.
Is there underlying risk in IBHFL’s business that has played a factor in Friday’s stock price fall?
On the asset side, only 10 per cent of our book is project finance, 10 per cent is lease rent discounting, and 80 per cent is in retail mortgages. So there is no risk coming from either the asset side, or the liabilities side, or the cash side. We are one of the most capitalised housing finance companies, at 24 per cent (capital adequacy ratio), while the industry average stands at 15 per cent. We are one of the least leveraged companies with debt exceeding equity six times, while the industry average is 10. We have strong risk management practices and pre-fund our trustees seven days in advance. Therefore, technical defaults cannot happen.
Could you give us a picture of the liquidity profile of IBHFL?
We have tried to maintain the discipline of ensuring our commercial paper is less than 8 per cent of our liabilities. We continue to be in that zone with gross borrowings standing at Rs 1.2 trillion and outstanding commercial papers varying between Rs 80 billion and Rs 100 billion.
There are rumours the RBI will bring out stricter guidelines for HFCs, particularly with regard to loans against property (LAP). Have you received any communication from the regulators?
These are market rumours and this is fear mongering. The regulator for HFCs has always been the National Housing Bank and not the RBI. The RBI regulates Indiabulls’ NBFC subsidiary. The NHB appraises every company. Now there is no need for a new policy on LAP because if I or any other company classifies a home loan as an LAP, the regulator will penalise the company and issue a show-cause notice.
